You may have noticed (and it’s without coincidence) the basketball connotation in this blog’s design. From the resemblance to an old wooden gym floor to the name itself, basketball radiates off the page. That comes from the heart given the importance the sport plays in my life; which takes me to my beloved Indiana Hoosiers. I wouldn’t call this a season on the brink just yet, but it unfortunately has turned into a season on the ropes. Losing the last two significant non-conference games and giving up 3 conference losses isn’t where we dreamed this team would be after their illustrious start. Alas, ups and downs are simply part of a normal progression of a season. This progression is not at all unlike the “seasons” of an investment portfolio as well.
After having gone through many a season now, I’ve come to appreciate the randomness in outcomes for a single game or even a small stretch of games. Water will find its own level after the course of a year, but not necessarily throughout each month. Some days, the ball just isn’t bouncing your way or dropping through the hoop; while your opponents are finding nothing but net from Curry range. For the better part of 8 years, every one of the basketball lulls has brought the full force of Hoosier nation down upon Coach Crean’s neck. This is a fan base that takes hoops very seriously, because to use Coach’s words….”It’s Indiana”.
My point certainly isn’t to reduce expectations – you should expect a lot from Indiana. You should also expect a lot from your retirement savings. But, in each case, we must pause and evaluate the criterion that indicates success. Doing so will help draw the distinction between short term frustration and longer term flaws. In each case, it’s important to revert back and look at process. You can influence outcomes, but you can’t control them. What you can control is having a sound process.
For anything, much less money, it is easy to get frustrated when the results aren’t there. Even for successful managers, there will be sustained periods of poor performance. 79% of the investment managers who wound up in the top quartile of performance over the entire decade of the 2000s spent at least 3 years in the bottom quartile (Davis Research). This is why it is the process that is to be evaluated as much or more than the results. Stick with a sound process that you continue to grind through and you will eventually find a change in the backdrop and come out stronger on the other side.
In both cases, basketball and investing, it has taken time and experience to understand these principles and not get too overly flustered with each painful game. Being mature isn’t something I’m often accused of personally – but in these two regards – maturity has many advantages. For my Hoosiers – no Crean hasn’t yet hung a final four banner, but does have a couple of conference titles and are graduating a solid core of principled young men. At FEG, our investment portfolios have had a season or two on the ropes over the past couple of decades, but we have continued to tweak and improve that process, coming out stronger each season. It is going through those past growing pains that make a good string of successful years so rewarding.
